NATIONAL REPORT— The theory that “the rich are different” becomes reality when applied to the growth of luxury brand leaders Four Seasons Hotels and The Ritz-Carlton Hotel Co. Both brands have been expanding aggressively, even in the face of overall slowing in industry supply, and now, against a slowing economy. While it’s true the number of projects coming to market seems diminished outward from the year 2000, that perception owes much to the glut of projects in the 1998-99 pipeline that now are either under construction or open, and to filling a needed market niche in urban or resort areas, the primary venues for luxury brands. Consequently, site-selection options narrow each time a luxury property opens, constricting the development process regarding appropriate markets. “Those are typically the riskiest and most costly projects there are, and only certain markets are going to be able to support them,” said Bobby Bowers, vp, Smith Travel Research. “Ritz-Carlton and Four Seasons have to go in pretty high-dollar markets because it takes a lot to pay the debt service… or they have to have some unique location aspect to them.” Both brands have been able to leverage the cachet of their names to encompass a wider range of real estate opportunities, i.e., being the lodging components of choice for developers building luxury condominium residences or vacation/fractional ownership projects. Stabilizing Factor The top players’ penchant for layering in residential units is a stabilizing factor when it comes to an income stream and creating a sense of place, Bowers believes. “They’re trying to leverage those brand names— Four Seasons and Ritz-Carlton are the crème de la crème— and create a brand ID. If you were interested in timeshare or condos, you’d have to assume those two are going to do it as well or better than anybody else.” Bowers noted the luxury chains are in markets “hit pretty hard in terms of occupancy, but in the long term they typically run the highest occupancies around— [first-quarter 2001 STR upper-upscale segment showed an average occupancy of 69.1% down from the year-ago period (71.2%)]. They appeal to travelers that are recession-resistant because they’ve got the money.” “Our portfolio is much larger and more globally diversified than ever before, allowing us to withstand economic softening in a particular region,” said Kathleen Taylor, president/worldwide business operations, Four Seasons. “Our development activity is reactive— being a manager of hotels, we’re not deploying our resources to create opportunities. We’ve always felt we need strong, local support for a project— development support in particular— as well as investment and equity support, and right now we have the strongest pipeline in the history of the company.” Michael Fishbin, partner/hospitality practice group, Ernst & Young LLP, said multiple uses enhance the financing scenario for the luxury brands because “they’re able to offset the traditional two- to three-year lease-up of a hotel. There’s immediate equity proceeds from either selling interval or individual condominium units. It also helps from an overall feasibility point because of the opportunity for all of these uses to feed off each other and extend the brand. It’s a strategy of having the brand drive the multiple uses.” Ritz-Carlton VP Stephanie Platt believes the residential piece is a “good thing for ownership to do as far as financing projects,” noting that, “The price per square foot for those condos is higher from being associated with Ritz-Carlton than if they were just a stand-alone condo. It’s a real win-win.” Fishbin considers the strategy prudent in any economy, and sees the 35- to 54-year-old market as the key demographic to capture. “It’s the market in terms of growth and disposable income. Look at the aging of the population and where the wealth is in terms of leisure spending, second-home ownership, etc. In an economic slowdown, there is a depth of the p
